Dairy Excel: Take these things into consideration when developing a farm partnership

I was recently involved in a discussion about a group of three farmers who purchased a large piece of equipment together, in equal shares, with the intention each would have the right to use it and with the assumption that service and repair costs would be equally split.

Fast forward a few years. Now one of the three no longer has a use for this equipment and the second doesn’t have the time or financial resources to contribute to maintenance costs. This leaves the third with the burden of all costs associated with maintaining the equipment.

While this was never considered a formal partnership, it is but one example of what can happen when a partnership is developed. This is not to say partnerships can not be successful — we all know of examples where they have worked beautifully, but we also can probably think of one or more that have failed.

Forming a partnership between two or more people to enter into a farming arrangement has a number of potential benefits in addition to a number of potential pitfalls. Let’s take a look at a few of them.

Benefits

Capital resources — generally the financial resources two or more people can bring to the table exceed what only one can provide.

Expertise — each person has their own set of life and business experiences that can contribute to the success of the business.

New operator — partnerships can provide an opportunity for young people to enter the business of agriculture and gain knowledge from an experienced operator.

Flexibility — having another person involved may allow you to concentrate on your specialties.

Taxes/legal issues — a partnership may have tax advantages and legal protections for the partners.

Shoulder to Cry On — from a mental health perspective it’s sometimes nice to have someone to share the emotional toll of running a business. There is this “we are in this together” thinking that can be helpful.

Personality — depending upon personalities, some people function better when they work with someone else.

Pitfalls

Conflict — it’s inevitable. Regardless of whether it is friends or family there is going to be conflict, some minor and potentially some major. In one survey, entrepreneurs were asked if they thought partnerships were a bad idea. Two-thirds of the respondents said they were, citing “inevitable conflict” and “unmet expectations.”

Researchers at the University of Minnesota found in a survey that about half of the second generation family business owners interviewed had hesitations about being involved because of the interpersonal conflicts.

Skills — an ideal partnership would bring together people with different skills to complement one another. If you are going to bring together two or more people with matching skills sets is there any reason to form a partnership?

Honesty — seems obvious, but not always understood.

Communication — just as many marriages end because of a lack of communication, so do business partnership arrangements.

Family — because many farm partnerships involve family this can be difficult to manage. The addition of in-laws can create severe strain on the business and those involved.

Selecting a partner

If you have an interest in forming a farming partnership arrangement, it is important to take the time to make sure you and your potential partner are compatible.

Some items to consider:

Management style — does the potential partner complement your style of management?

Personality — if the two of you can’t get along the partnership and business will fail. A farming partnership is very much like a marriage.

Mission/Vision/Goals — are they similar to those that you have?

Skills — does the potential partner possess a skill set that benefits the business?

Responsibility — will the potential partner show up and complete assignments or will things be left for you to complete?

If you are considering forming a partnership, take the time to research the positives and potential pitfalls and take extra time to find the right match for your partnership.

More information

Additional resources available through Ohio State University Extension include Transferring Your Farm Business to the Next Generation, OSUE Bulletin 862, along with the farm transition fact sheet series available at http://ohioline.osu.edu or through your local county Extension office.

(The author is an agricultural extension educator in Tuscarawas and Holmes counties and a member of the OSU Extension DairyExcel team. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)

About the Author

(Chris Zoller is an agricultural extension educator in Tuscarawas County and a member of the OSU Extension DairyExcel team.) More Stories by Chris Zoller

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